Last week, the CLS Blue Sky Blog summarized a study on the use of humor in corporate earnings calls. The results were kind of interesting:
We find that managers are less likely to use humor on a call when the tone of analysts’ questions is negative, suggesting managers are deliberate about when to use humor. Further, our results indicate that managers are more likely to use humor if an analyst first uses humor on the call. We also find that the market reaction in the three days surrounding the conference call is more positive when managers use humor, a result that is partially driven by a muted reaction to negative manager tone when managers use humor. Additionally, our tests of analysts’ reactions indicate that managers’ use of humor is generally associated with upward revisions in analysts’ stock recommendations shortly after the call.
It looks like the takeaway here is that a little humor from your execs can give a bit of a bounce to your stock price. Everybody’s trying to make their earnings call stand out from the pack these days, and given the potential upside here it wouldn’t surprise me to see companies make a conscious effort to inject comic relief into the proceedings. Well, you folks can do what you want, but if you ask me, I’d be very cautious about trying to throw your CEO into the deep end of the humor pool.
My point is that comedy is a high-wire act, and chances are pretty good that your CEO isn’t funny. Worse, it’s almost a lock that most CEOs think they’re hysterical. After all, a lot of CEOs spend their days surrounded by people who tell them how awesome they are and laugh at all their jokes. That can lead to catastrophic consequences for CEOs who decide that Dave Chappelle has nothing on them and that breaking out their standup act on an earnings call is a great idea.
Here’s a case in point – last year at about this time, the subscription software provider Zuora attempted to turn its earnings call into a “dialogue” featuring ad-libbed attempts at humorous asides. The execs involved likely thought they were being amusing. According to a MarketWatch.com article, the market thought otherwise:
Wall Street didn’t seem too amused by the strange new take on an earnings call, which took place as shares were falling in the aftermarket. Zuora’s stock closed down 19% in Friday’s session, the largest single-day percentage drop in Zuora’s history as a public company.
Yikes! Any company that’s considering turning their next earnings call into an SNL skit should keep in mind Zuora’s cautionary tale – as well as the old theatrical adage that says “Dying is easy. Comedy is hard.”
-John Jenkins, TheCorporateCounsel.net, August 13, 2019
